Sibanye-Stillwater announced yesterday that it will access $500 million (R8.8 billion) in non-debt capital after the company entered into a streaming agreement with Franco-Nevada for a fraction of gold and platinum produced from its Marikana, Rustenburg and Kroondal operations in South Africa.
Shares in the SA gold and platinum group metals (PGM) producer traded 2.3% weaker to R16.64 in afternoon trade on the JSE yesterday, adding to the company’s 8.83%, 15.82% and 31.61% weakening in the past seven days, six months and year-to-date periods respectively.
Although the new streaming agreement is still subject to approvals from the South African Reserve Bank, Sibanye-Stillwater will receive a $500m upfront payment in exchange for gold ounces equal to 1.1% of 4E PGM ounces contained in concentrate until delivery of 87 500 ounces of gold, then 0.75% of 4E PGM ounces contained in concentrate until total delivery of 237 000 ounces of gold, then 80% of gold contained in concentrate for the remaining life-of-mine.
The company will also receive a production payment price equal to 5% per ounce of the spot gold price on the date of delivery until total delivery of 237 000 ounces of gold, which will increase to 10% of the spot gold price thereafter. Additionally, Franco-Nevada will receive platinum ounces equal to 1% of platinum contained in concentrate until delivery of 48 000 ounces of platinum.
“We have raised $500m (R8.8bn) of non-debt capital by primarily streaming gold, a minor component of the basket of metals produced from our SA PGM operations and a marginal and finite amount of platinum, which retains significant leverage to higher PGM prices, which we anticipate,” said Neal Froneman, CEO of Sibanye-Stillwater.
He added that the financial financial support from Franco-Nevada further validates the quality and long-term viability of Sibanye-Stillwater’s PGM assets.
Equities analyst, Alex Frey said: “Basically, Sibanye-Stillwater is raising non-debt capital.”
For Sibanye-Stillwater, the latest agreement “monetises the future value of gold” produced from its PGM operations in Kroondal, Rustenburg and Marikana.
The streaming agreement will conclude after delivery of 294 000 ounces of platinum, representing approximately 25 years and “a marginal amount of total annual platinum production” from the three operations.
With PGM prices lower and Fitch Ratings saying there were no catalysts for an upswing, the agreement has helped Sibanye-Stillwater retain “significant leverage” in relation to PGM pricing.
According to Fitch Ratings, there was a possibility of “a slight increase for platinum and palladium prices to $1 050 per ounce, reflecting our view that producers will evaluate the progress of cost-cutting efforts and then decide on next steps, including potential supply cuts at mines that will remain free cash flow negative” in the long term.
“Sibanye-Stillwater also has the option to substitute gold deliveries for platinum deliveries under the Stream Agreement, in certain circumstances,” said the company.
“The $500m advance amount further enhances the group capital structure, improves balance sheet headroom and liquidity and reduces net debt, placing the group in a secure and sustainable financial position.”
Nonetheless, Fitch expects free cash flow for the company to remain negative over the 2024 to 2026 period.
“Business plan execution risks have visibly increased in 2024 with the group embarking on broad restructuring and cost-cutting,” said Fitch Ratings of Sibanye-Stillwater.
BUSINESS REPORT